Co-op unveils plans to plug capital shortfall

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Comprehensive plans have been announced today as to how The Co-operative Bank will fill its capital shortfall.

Following a review of it capital position and confirmation by the financial regulator, the Prudential Regulation Authority (PRA), that the bank had a "black hole" of £1.5 billion, the Co-operative Group stated that it would be taking action to "generate capital and provide stability".

Unlike rescue plans carried out at the height of the credit crisis, which relied on help from taxpayers, The Co-operative Bank will instead raise capital via a 'bail in' process, whereby shares in the bank will be offered to existing bondholders. Shares will also be listed on the stock market.

The Co-operative Group, the bank's parent company, is also expected to provide extra capital to help make up the shortfall.

Concerns about the bank's capital position have been widespread since the ratings agency, Moody's, downgraded its debt rating to 'junk status' in May this year.

In a statement, the chief executive of The Co-operative Group, Euan Sutherland, declared: "We have put in place a detailed and comprehensive solution to meet the current and longer-term capital requirements of the Bank. In doing, so we have agreed a plan to ensure its future.

"We have discussed this plan in full with the regulator. The Co-operative Group, which clearly regards the Bank as a core part of the Group, is providing extra capital. Investors in the Bank's subordinated capital securities are also being asked to support the Bank at this crucial time by participating in a wider exchange offer.

"This solution, under which they will own a significant minority stake in the Bank, will then allow them to share in the upside of the transformation of the Bank," he said.